Easy Sunday Notes

August 27, 2026

A plain-English guide to Roth IRAs, backdoor Roth IRAs, income limits, the pro-rata rule, and more. (~6min read)

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Things I wish more people knew about Roth IRA and backdoor Roth IRA

Roth IRAs are the darlings of personal finance content online.

Open one for yourself. Open one for your kid. Put in a few thousand dollars a year. Let compound growth do its thing. Retire with a giant tax-free bucket of money.

Honestly? The love is not completely undeserved.

A Roth IRA can be a fantastic tool, but like many things in personal finance, the simple version leaves out the parts where people accidentally trip over tax rules.

So let’s talk about it.

Why are Roth IRAs so great?

For those of us who learned about Roth IRAs well into our adulthood and thought, “Wait, why did no one explain this to me earlier?” Yes, I get it.

Here are the big reasons people like them:

• Tax-free growth. Your investments can grow tax-free inside a Roth IRA, and you can withdraw the money tax-free in retirement - generally once you’re 59½ and have had a Roth IRA for at least five years.
• Flexibility. Unlike a 401(k), Roth IRA contributions (the money you put in) can generally be withdrawn at any time, tax and penalty-free.
• Sometimes the best answer is both. Can’t choose? You may be able to contribute to both a 401(k) and a Roth IRA, but see below for important to know contribution and income limits!
• No required minimum distributions (RMDs) in your lifetime. Unlike traditional, rollover, SEP, and SIMPLE IRAs, you're not required to withdraw from Roth IRA at a certain age. That can give the money more time to grow tax-free, especially if you do not need it right away.
• Potential estate planning benefits. If your heirs inherit your traditional IRA, withdrawals are usually taxable to them. If they inherit a Roth IRA, withdrawals are also income-tax-free as long as the rules are met.

This is why Roth IRAs get so much attention.

But before you rush to fund one, there are two questions you need to answer.

Question 1: Do you have earned income?

To contribute to a Roth IRA, you need earned income.

That generally means wages, salary, tips, bonuses, commissions, or self-employment income. It does not usually include rental income, interest, dividends, pensions, or investment gains.

This is the part that gets glossed over when influencers talk about opening Roth IRAs for babies.

A six-month-old cannot contribute to a Roth IRA just because a parent wants to start early, unless that baby is legitimately modeling for your AI-powered pacifier startup, in which case, congrats on your tiny working professional.

The key is that the child needs legitimate earned income. If you paid your baby model $1,000, she can only contribute up to $1,000.

For 2026, the IRA contribution limit is $7,500. If you’re age 50 or older, you can contribute an additional $1,100, for a total of $8,600. These limits can change each year, so please the current IRS numbers before contributing. 2026 IRS Rules >>​

Nonetheless, the compounding math can be amazing.

If someone contributed $5,000 a year for 18 years and it grew 7% annually on average, the account could grow to roughly $170,000.

Whether an 18-year-old is emotionally ready to manage that much money is another question entirely.

Question 2: Does your income allow you to contribute directly?

Even if you have earned income, you may not be allowed to contribute directly to a Roth IRA if your income is too high.

This is one of the areas people may get tripped up. The annual contribution limit tells you how much you are able to contribute. The income limit determines whether you can contribute directly to a Roth IRA at all.

For 2026, your ability to contribute directly to a Roth IRA phases out once your modified adjusted gross income reaches certain levels. For 2026, the Roth IRA contribution phaseout range is $153,000–$168,000 for single filers and $242,000–$252,000 for married couples filing jointly. If your income is above the allowed range, you generally cannot contribute directly to a Roth IRA. 2026 IRS Rules >>​

That does not necessarily mean the door is completely closed. This is where the backdoor Roth IRA strategy comes in.

A Roth IRA and a backdoor Roth IRA are not two different account types.

The Roth IRA is the account.

“Backdoor Roth” is a strategy some higher-income earners use when they are not eligible to contribute directly to a Roth IRA.

In simple terms, the strategy usually works like this:

1. You contribute after-tax money to a traditional IRA.
2. You convert that money from the traditional IRA to a Roth IRA.
3. You file the tax form that tracks the nondeductible contribution.

That sounds easy enough? But there is a big catch.

The pro-rata rule: the part people miss

The backdoor Roth IRA can get messy if you already have pre-tax money sitting in a traditional IRA, rollover IRA, SEP IRA, or SIMPLE IRA.

This is because of something called the pro-rata rule.

The IRS looks at all your traditional/SEP/SIMPLE IRA balances as of December 31st of the tax year you make the conversion. You generally cannot choose to convert only the after-tax dollars and pretend the pre-tax dollars are not there.

So if you have a Rollover IRA with a previous employer’s 401(k), the backdoor Roth may not be as clean as the internet makes it sound.

This does not mean you have no options but to watch your Roth IRA sit idle.

A few things to look into:

• Whether your current employer’s 401(k) accepts rollovers from IRAs.
• Whether a solo 401(k) could make sense if you are self-employed and eligible.
• Whether a Roth conversion makes sense in your tax bracket.
• Whether the tax cost is worth it for your longer-term plan.

A Roth conversion is not automatically bad. But it can create taxable income, so it needs to be evaluated with your actual tax situation in mind.

Also: if you are doing a backdoor Roth IRA, the paperwork matters. Form 8606 is the form used to report nondeductible IRA contributions and help track your basis. This is not the fun part, but it is the part that keeps your tax records from becoming a future archaeology project.

Another common mistake: contributing is not the same as investing

This sounds obvious, but it catches people all the time. Opening a Roth IRA and putting money into it is step one. Investing that money is step two.

If you contribute to a Roth IRA at a brokerage and never choose an investment, the money may sit in cash or a settlement fund. It is inside the Roth IRA, yes. But it may not actually be invested for long-term growth.

This is different from most employer sponsored 401(k) plans, where contributions may be automatically invested into a default option, if you do not make an investment choice.

With a self-directed Roth IRA, you usually have to take the extra step.

Choose the investment. Set up automatic investing if available. Check that the money is actually doing what you intended it to do.

So should you use a Roth IRA?

Maybe.

Very satisfying answer, I know. But context does matter.

For many people, a Roth IRA can be a great complement to a traditional 401(k), especially if they are already getting an employer match.

If your employer matches the first 3% of your 401(k) contribution, that match is usually the first place to fund. Contributing enough to get the full match is often the closest thing to “free money” in personal finance.

After that, the question becomes more personal:

Should you contribute to a Roth IRA if you qualify? And if you don’t, should you do a backdoor Roth IRA?

Should you put more into your 401(k)? Should you do both?

The answer depends on your income, tax bracket, existing IRA balances, employer plan, cash flow, goals, and how the rest of your financial life is set up.

That is why the real question is not just: “Can I do a Roth IRA?”

It is: “Does this fit my long-term plan?”

Some final thoughts

A Roth IRA can be a powerful account because it gives you tax-free growth potential, flexibility, and another bucket to draw from later. Paired with a traditional 401(k), it can also give you more tax flexibility in retirement.

But the backdoor Roth IRA is not a casual “just do this” move for everyone.

If you have existing pre-tax IRA money, if you are not sure whether your contribution is deductible or nondeductible, or if you do not know how Form 8606 works, pause before you move money around.

A good financial strategy is about using the right accounts, in the right order, for the life you are actually trying to build. Not collecting “cool tax advantaged” accounts because a 30-second talking head video said so.

If this brought up questions about your own accounts, feel free to hit reply. I can’t give personalized advice without understanding your full picture, but I’m happy to answer general questions or help you figure out what to look into. This is the kind of planning work I’m building Easy Sunday FP around: bringing clarity to all the scattered pieces.

Lastly, a fun poll below.

Thanks for being here,
Cathy